TAX FALLOUT HITS LOCALS
It didn’t take long for unintended consequences of B.C.’s new tax on real estate purchases by foreign buyers to surface.
The 15-per-cent tax is already being blamed for the collapse of deals struck but not closed before it went into effect Aug. 2. Canadian sellers may, in turn, have to renege on offers made to buy another home thinking they had a done deal on their own property. The tax, in other words, will harm Canadian buyers and sellers as well as foreign nationals.
And the harm is considerable. The additional tax on the purchase of a home selling for $2 million to a foreign buyer amounts to $300,000. There are reports of buyers demanding sellers take less than accepted offers to compensate for the tax. If a foreign buyer chooses to walk away and default on a purchase contract, the deposit remains in trust with the realty agency and a seller would likely have to seek a court order to have it released.
As an opinion piece published today explains, a tax that penalizes foreign investors, singling them out for special tax treatment, may also violate the North American Free Trade Agreement. Not only could B.C. and Canada face a complaint from American (or Mexican) buyers of B.C. property via NAFTA’s Chapter 11 dispute mechanism, but U.S. states popular with Canadians, where many have second homes (California, Arizona, Florida and Hawaii come to mind), could take retaliatory measures.
Vancouver employers had complained that they had trouble recruiting foreign talent because of Vancouver’s high housing prices. Now, the betting is they will have just as much trouble attracting non-Canadian staff because new hires will be subject to the discriminatory foreign buyers tax.
While the luxury home market in Vancouver was the focus of the tax, more modest homes in municipalities covered by the Fraser Valley Real Estate Board — namely Surrey, White Rock, Langley and North Delta — are also affected. These homes draw mainly middle to uppermiddle income professionals on work visas who will be hard-pressed to pay the tax.
Perhaps the least surprising unintended consequence is that the tax is expected to have a negligible effect on affordability. Foreign buyers represent just 10 per cent of sales, by the government’s own reckoning. They are not singlehandedly driving the market. There are many other factors at play, including low incomes compared with other provinces, probably due to poor job quality and weak productivity growth. Those problems are far too complicated to fix with a tax.